What Is Mortgage Deferment?

What Is Mortgage Deferment?

Mortgage deferment is a form of payment relief that postpones one or more regular monthly payments until the end of the mortgage repayment term. If your lender offers payment deferment, you'll typically have to show evidence of temporary financial hardship. You may also have to meet other qualifications such as a minimum credit score.

Mortgage deferment may be offered as an alternative to mortgage forbearance, or used in combination with it. Depending on the structure of your loan and your mortgage lender's policies, deferment can be organized in either of two ways:

• Term extension: Each payment you defer may be added to the back end of your loan, extending your repayment period and typically accruing interest over the remaining life of your loan.
• Balloon payment: More commonly, the total amount you defer is payable as a lump sum, or balloon payment, due when your loan term ends or when you sell the property or refinance the loan. The balloon payment amount may include a calculated interest charge, but interest typically does not accrue on that sum over the remainder of the loan term.

Mortgage Deferment vs. Forbearance

Mortgage deferment and mortgage forbearance are both forms of hardship relief that may be available from your lender.

Forbearance is a form of hardship relief mortgage servicers offer at their discretion to borrowers who demonstrate temporary financial hardship. It reduces or suspends mortgage payments for an agreed-upon number of months (typically no more than 12). At the end of the forbearance period, the borrower is expected to:

• Resume regular monthly payments
• Bring their loan current by repaying the amount they were excused from paying during the forbearance period, either in a lump sum or in a series of installments added to their regular payments

Fannie Mae and Freddie Mac, the federally chartered corporations that purchase most of America's single-family home mortgages from the lenders who originate them, authorize deferment of up to 12 months' worth of payments.

If, at the end of that forbearance period, the borrower cannot afford to repay excused payments, Fannie and Freddie can authorize loan servicers to defer forbearance payments until the end of the loan term. If the forbearance agreement called for interest to accrue on excused payments during the forbearance period, those charges will be included in the balloon payment, but no additional interest will accrue on that sum.

Pros and Cons of Mortgage Deferment

If mortgage payment deferment is an option for you, here are some factors to consider before pursuing it.

Learn more: Does Deferring a Payment Hurt Your Credit?

Should You Defer Your Mortgage?

Mortgage deferment could bring welcome relief if a short-term financial hardship is making your monthly mortgage payments unaffordable. If you are confident you'll be able to resume regular payments after you get through this setback, ask your mortgage servicer about mortgage deferment, alone and in conjunction with mortgage forbearance.

Be mindful of how deferring payments will add to the overall cost of your loan and, if deferment will add a balloon payment to the end of your loan term, begin preparing right away to cover that expense.

How to Defer Your Mortgage

If mortgage deferment is an option you'd like to pursue, here are some guidelines on how to go about it:

• Document the financial hardship. Mortgage deferment is a form of hardship relief, so you'll need to provide evidence of financial hardship. If you've incurred an unexpected expense or a temporary loss of income, gather invoices, pay stubs and other documents to illustrate the problem. Also, be ready to explain how and when you expect the hardship to end, and how you'll manage to resume your mortgage payments when it's over.
• Contact your loan servicer. As soon as you determine you'll be unable to make a payment, reach out to your loan servicer—the company that collects your mortgage payments, which may or may not be the lender that originated the loan. You'll find contact information on their website or mobile app, or on any materials they may have mailed to you.
• Understand the terms. Ask your servicer about relief options, including payment deferment. If deferment is one of several available options, consider them all carefully. Deferment may still be your preference, but it's important to consider them all. If deferment is available only after forbearance, understand that you follow through on that process before payment deferment is on the table.
• Request written confirmation. Once you settle on a plan that works for you, have the loan servicer set the terms down in writing. Review the agreement carefully and follow all procedures carefully.
• Budget for the future. If your deferment plan calls for making a balloon payment at the end of your loan repayment term, take steps immediately to prepare for that event. Determine how much you should set aside each month to accumulate the necessary sum, and start saving.

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Alternatives to Mortgage Deferment

If financial hardship has you considering mortgage deferment, some of these other options may be worth examining as well.

• Forbearance: Some lenders offer loan deferment and forbearance as alternatives, but many combine the two, offering deferment only upon completion of a forbearance plan. Discuss options with your loan servicer.
• Mortgage modification: A mortgage modification is a permanent change in your home loan's terms, typically aimed at lowering the monthly payment amount. Because it may also adjust the interest rate and/or extend the repayment term, it often increases the total cost of the loan.
• Refinancing: Refinancing entails applying for a new loan and using the proceeds to pay off the remainder of your existing mortgage. Its goals may include getting a loan with a lower interest rate, replacing an adjustable-rate mortgage (ARM) with a fixed-rate loan, or obtaining lower monthly payments.
• Sale of the house: It's probably not your first choice, but if you're concerned about your ability to continue making mortgage payments, consider putting your house on the market. Depending on where you live and how much home equity you have, this could put you in a good position to buy a more affordable home nearby.

The Bottom Line

Mortgage deferment can bring welcome relief if you're contending with a short-term financial pinch. Deferment isn't an option on every loan, and when available it can have significant qualification requirements, but if you qualify it could bring some welcome breathing room.